It doesn't grow on trees: Economists urge minimum wage in Saudi

Economists have called for establishing a minimum wage policy for both Saudis and expatriates working in the Saudi Kingdom, as a new report highlights the pay difference between Saudi citizens and expatriates.

The latest statistics issued by Hay Group's 2012 Saudi Arabia[3] Compensation and Benefits show that the salary gap between Saudi nationals and expatriates is widening; Saudis receive 17 percent more than the market average, while non-Saudis get four percent below the market average.

A total of 356 companies in 17 industrial sectors were included in the study, which reported that salaries in Saudi Arabia rose by 3.8 percent over the last 12 months.

"The recent increase in salaries in the government sector is normal due to inflation. All countries worldwide are suffering from inflation, while the private sector's employees still suffer from inadequate or below-the-average salaries. The Ministry of Labor has called for a minimum of SR 3,000 to be paid in the private sector, but a majority of companies have not yet followed this decision,"said Salem Baajaja, professor of accountancy at Taif University.

He added: "Corporate giants will not be affected negatively by adopting the minimum wage policy where the profits of these companies are around 50 to 60 percent. Small companies, on the other hand, stand to be adversely impacted by the minimum wage implementation. Private sector organizations are currently recruiting more nationals, especially after the launching of the Nitaqat program. There is no doubt that the recruitment of Saudis will force companies to pay higher salaries, especially where there is a big variation in the minimum wages of Saudis and expatriate workers," he said.

According to Baajaja, the widening gap between the salaries of nationals and expatriates should be narrowed, or even disappear."Increasing minimum wages is always needed due to inflation. As both Saudis and expatriate employees are suffering from inflation, minimum wages of both nationalities and expatriates have to be increased. Secondly, the newly hired nationals are receiving the largest pay increases, and the third trend is an increase in the proportion of salary that is a performance-based bonus," he said.Baajaja added that the gap between the salaries of nationals and expatriates is likely to continue to increase.

"The widening of this gap can be attributed to a combination of the efforts of Nitaqat and a talent shortage in certain functions and industries. In 2013, we expect to see more demand for nationals with specialist skills such as finance, IT, HR, engineering and production. Fifty-one percent of our participating companies told us there is a scarcity of candidates," he said.

Abdulwahab Al-Gahtani, professor at the faculty of strategic management and human resources management at King Fahd University of Petroleum and Minerals, said the minimum wage issue in the Kingdom should be tackled urgently for many reasons.

"The most obvious reason is that Saudi Arabia is a signatory member country of the International Labor Organization's (ILO's) agreements on many labor issues. Therefore, it must adhere to all of the signed agreements. The labor market in Saudi Arabia is not well regulated for pay and working hours and so many Saudi and expatriate workers are exploited with low pay and long working hours," he said.

He added: "The increase in pay for Saudis will encourage the localization of employment which will enhance the Saudi government plans to localize jobs in order to gradually replace expatriates with Saudis. Therefore, the private sector also will have to employ Saudis in the long run.

"Unfortunately, private sector companies are taking the advantage of the absence of a well-established minimum wage policy in the Kingdom to employ expatriates, he said. "The government must bridge the wage gap between Saudis and expatriates for fairness and success of Saudization. Employment of Saudis and expatriates must be based on the labor market supply and demand," he said. According to Al-Gahtani, the global economic indicators show that inflation is continuously on the rise."Both Saudis and expatriates are affected by inflation in the Kingdom and thus the government is advised to periodically revisit the minimum wage to reflect inflation in Saudi Arabia. We expect that minimum wages in Saudi Arabia should increase in the coming years as a result of increasing inflation," he added.

Turki Fadak, a financial analyst, stated that establishing a minimum wage for employees of the private sector depends on forces of supply and demand, which will affect the sector negatively.

"Such a step will reduce the average wages, reduce employment in low-wage industries such as retail, and will hurt the low-paid unskilled employees," he said."The private sector has been unable to adopt the minimum wage policy and will never do that," Fadak added.